Should Employees Know About Methods To Uncover Fraud?

Big Brother is not only watching at many companies, he may be recording every computer key pressed, every e-mail sent, every website visited and every phone call made. Surveillance is the norm at many workplaces, yet it often goes unpublicized by the companies conducting monitoring of their employees' activities. Most companies view the fact they are watching employees as something to be kept secret. However, there is a tremendous benefit to be gained by raising awareness of the company's efforts to proactively monitor and investigate internal fraud.

Statistics in Actual Cases

The typical fraud scheme takes 18 months to detect.
Occupation fraud is often detected via tips. If an organization has an employee hotline, it takes 12 months to detect fraud. Without a hotline, the period increases to 24 months
Companies that don't use surprise audits experience a median fraud loss per scheme that is almost twice as high as companies that do use surprise audits.

- Association of Certified Fraud Examiner's "Report to the Nation"

The perception of detection is not only an effective tool to minimize internal fraud, it can be one of the most cost effective methods of doing so. The cost to communicate the company's internal fraud prevention efforts is minimal given the potential losses that can be avoided.

The goal of such communication is for employees to perceive that the chances of being caught are high.

In most cases, perception is not reality, as it is virtually impossible to monitor each and every transaction performed throughout your company's operations. However, by communicating the existence of internal fraud procedures without providing a definitive list of all methods, the company can counteract the desire to steal. The company is planting the seed in the minds of dishonest employees asking themselves: Is this transaction being reviewed by the internal fraud department? Will I be caught if I take this money? Is someone intercepting my e-mail?

Consider publicizing the following aspects of your internal prevention efforts:

The existence of a company department. Many companies have created an internal fraud detection department, yet often, the employees are unaware of its existence. Consider letting staff members know the types of activities the department monitors and investigates, as well as how many people are assigned to the department. The very existence of highly trained and dedicated internal fraud investigators often convinces employee that the likelihood of being caught is all but certain.
Monitoring software. Prior to logging on to the company's computer system, many companies ask employees to acknowledge that their activities will be monitored. However, there is usually minimal evidence presented to employees that this monitoring is actually taking place. Consider providing examples of the type of information the company can capture, such as a log of the systems accessed, the websites viewed, and the content of e-mail messages sent and received.
Surprise audits. Never knowing when an employee will be asked to turn over work to an auditor can serve as a very effective deterrent. The key however, is to truly employ surprise audits that cannot be predicted by employees. Make sure that no detectable pattern exists that would allow employees to time fraudulent activities. For example, some employees know the individual who normally performs surprise audits. When that person goes on vacation, fraud may occur. More importantly, make sure that staff members know that audits can be conducted without notice, on a random basis, by skilled auditors.
Visible, credible punishment for perpetrators of internal fraud. If employees are uncertain about whether or not they should steal from your company, they may decide against it if they perceive the costs of getting caught are significant. Prosecute perpetrators and consider publicizing the results of internal investigations in a company newsletter. The names of employees should be removed, as well as any case specifics that could identify the perpetrators. The goal is not to detail specific employees' actions but to provide would-be fraudsters with direct evidence that punishment exists for employees that steal from the company

To further support the detection and monitoring efforts noted above, consider implementing the following:

Insist that employees use their allotted vacation time. Internal fraudsters often refuse to take vacation time because they must remain at work to keep the fraud hidden from colleagues and management. By enforcing mandatory vacation time, a subtle message is sent to the potential fraudster that at some point during the year, he will be unable to "guard" the fraud. If the employee feels that their fraud will be discovered during the mandatory vacation time, this may cause them not to commit fraud in the first place.

Establish a confidential hotline. Often, a confidential hotline is put in place, yet not openly publicized and when calls are received, they are often unrelated to internal fraud. To improve the overall effectiveness of the hotline, advertise it on the company website and newsletters and provide examples of the types of activities that are appropriate to report.

There's no single step that a company can take to increase the perception of detection among employees. The approaches described above can provide specific and relatively simple reasons for dishonest employees not to commit fraud. Whether or not the company monitors all the types of activities involved in potential fraud is almost irrelevant. What's important is that employees perceive that the company is actively monitoring transactions. The perception of detection becomes the reality.

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.